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Fears of Europe’s debt crisis on global recovery hits Brazil’s Real

Tuesday, May 25th 2010 - 06:17 UTC
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The Brazilian currency has declined 6.7% this year The Brazilian currency has declined 6.7% this year

Brazil’s currency fell Monday over concern Europe’s debt crisis may slow the global economic recovery. The Real slid 0.9% to 1.8704 per U.S. dollar from 1.8534 on May 21. The currency has declined 6.7% this year after rising 33% in 2009.

“We’re seeing a lot of declines on top of concerns about Greece and Europe,” said Paulo Petrassi at Leme Investimentos in Florianopolis, Brazil. “Flows will come back to Brazil when you have signs of stability out there, and it doesn’t look like that will happen in the short term.” creditworthiness of financial institutions is deteriorating.

Brazilian currency traders are paying the highest premium in developing markets to insure against a tumble in the Real after Europe’s debt crisis sparked the biggest monthly retreat since November 2008.

The so-called risk-reversal rate has more than tripled from 2.34 percentage points in February in favor of options to give investors the right to sell the Real. In the overnight interest-rate futures market, the yield on contracts due in January fell one basis points, or 0.01 percentage point, to 10.92%.

Inflation in Brazil’s 12 biggest cities slowed last week, with consumer prices rising 0.47%, according to a report published Monday by the Getulio Vargas Foundation in Rio de Janeiro.

Categories: Economy, Politics, Brazil.

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